Should I Invest in Gold? Read our Guide to Find Out More
Investing in gold is a timeless method of diversifying and building a shockproof foundation for your investment portfolio. For millennia, gold has been valued as a finite, valuable, and rock-solid investment both due to the nature of the metal itself and the resiliency of the market.
Investing in gold is relatively straight-forward, but it is important to know a few key facts and strategies before you begin. We are going to take a look at why you ought to invest in gold, how deep your gold position should be, and how you can go about doing so.
The Gold Standard
There is a reason top-shelf or essential items are referred to as being the “gold standard,” be it luxury watches or breakfast cereals. Gold smelting first arose in ancient Egypt and became connected to that culture’s complex funerary rites when they noticed that the sun metal did not tarnish or corrode with age. By 350 BC, gold coins were circulating in China, priming the pump for that proto-nation’s jump into the silk trade. Gold was the currency of the Roman Empire, and it was the search for gold that drove legions of Spanish conquistadors and early English colonists to the New World. The great migration west along the Oregon Trail was spurred by rich gold strikes in California, and the United States only left the actual gold standard – whereby all paper money issued was backed by an equal amount of physical gold – in 1914.
This paints a picture of gold as perhaps the oldest and most well-developed market in the world. It stands to reason, then, that gold forms the backbone of many portfolios where a certain measure of safety needs to be guaranteed.
For maximum stability in a portfolio, some experts insist that 5–15 per cent of the total portfolio value ought to be stashed in gold bullion. Critically, gold should not be treated like a security to be traded or even a high-value real estate item. That is, experts recommend buying gold and simply leaving it be instead of trading it. Gold acts as a sort of insurance policy. In the same way you would not stake your insurance policy or fiddle with it based on the constantly changing value of your car or home, gold should be left untouched in your portfolio to provide a bedrock for more volatile assets.
For maximum stability in a portfolio, some experts insist that 5–15 per cent of the total portfolio value ought to be stashed in gold bullion.
A side benefit to this strategy is that gold is an excellent medium for long-term wealth management – across generations, even. Since gold can be counted on to hold its value for the foreseeable future, it makes an ideal medium for passing along a certain nigh-guaranteed sum of wealth. This kind of stability is almost unique in the financial world – currency, stocks, property, and even certain kinds of bonds can degrade over time. An investment in gold, like the metal itself, virtually never does.
Gold in Them Thar Hills
Once you have made the decision to allocate a certain percentage of your portfolio to gold, the question becomes how to do so. First, it is important to realize that not all gold investments are created equally. What we are looking for is actual gold bullion, rather than the more speculative – and so less secure – gold-related tangential investments, like mining company shares, gold-based investment funds, or other gold vehicles.
Bullion, quite simply, is gold in its physical form, be it bars, ingots, or coins. There are slight differences between each category, but the main takeaway when you are looking for a gold supplier is that you want gold in-hand – not electronic gold and not paper gold, which are derivative products. This is an essential thing to look for, as not all suppliers will make it immediately obvious that you are buying a derivative and not actual bullion.
A 12.5kg Gold Bullion Bar, Image from BullionByPost
It is recommended that you begin your gold buying with a 360-degree internet search. That is, find potential suppliers in your region and then find reviews – good and bad – of those suppliers.
This will give you a bit of background to work with while you prepare the next stage of your research, which should be personal recommendations or word-of-mouth. Seek out other like-minded investors and ask them about their suppliers. This has the benefit of skipping perhaps dishonest or incomplete internet reviews while allowing you the opportunity to ask pointed questions about each suppliers’ process, fees, and customer service.
Protecting Your Investment
Once you have narrowed down your potential supplier list and made your decision, it is still not time to actually pull the trigger on buying your bullion.
While gold itself is immutable and holds value well, it is not really a great investment until it is physically in your hands, as opposed to something like a security, which can be held in trust. To that end, it is important to insure your bullion delivery to make sure that nothing happens between the supplier and yourself that could cause you to lose your physical investment. Reputable bullion dealers will often offer insurance as a matter of course; failure to do so or neglecting to mention insurance at all should be an immediate red flag.
If your chosen supplier does not offer insurance but you choose to push ahead anyway, consider third-party insurance options. It bears repeating that your gold investment is not really a secure investment until it is safely in your hands or a storage facility, like a bank safe deposit box.
It bears repeating that your gold investment is not really a secure investment until it is safely in your hands or a storage facility, like a bank safe deposit box.
A corollary to this is being mindful of hidden fees. Be aware that the cost of your desired gold may include processing or handling fees above and beyond the value of the gold itself. This can vary quite considerably between dealers, so a lower-quoted gold price at one supplier may not indeed be the better deal once all fees and considerations are taken into account. Look for total transparency as a sort of golden rule – your supplier needs to be upfront about its insurance obligations and their associated fees. Gold has attracted all sorts since the pyramid days; be sure that you are dealing with reputable folks.
A Golden Opportunity
There is no denying that gold can provide one of the most solid possible bases for a portfolio, correctly applied. There is little sense in buying gold – or indeed any precious metal or commodity – with an eye toward trading it unless you happen to be a specialist in the field. For the average investor, gold is supposed to act as an anchor for the portfolio as a whole, anchoring it against volatility from securities and other investment classes.
All that glitters, however, is not quite gold. Be sure that you are buying actual, in-hand bullion, as opposed to electronic gold or financial instruments based on gold. If you cannot physically pick it up, there is a good chance that you are not buying gold but a gold derivative.
All that glitters, however, is not quite gold. Be sure that you are buying actual, in-hand bullion, as opposed to electronic gold or financial instruments based on gold.
Do your due diligence. Research potential suppliers until you know them inside and out, both on and offline. Then dig down into the nitty-gritty of insurance stipulations and fees. Be sure that everyone involved knows the risks and obligations associated with your transaction.
Finally, keep your gold safe. It is a physical asset, after all, and so prone to theft and loss. While far more durable than paper money, it can still be lost as easily as a pen, a wallet, or any other physical item. Get a solid safe or use a trusted safe deposit box to make sure your gold – and your portfolio – remain shining.